2024

Susanne Schreiber

Toni Hess

Tax law challenges for partnerships (2024)

Susanne Schreiber

Toni Hess

Case 1: Self-employment

1. facts of the case

A. has acquired X GmbH together with B. and C. A. uses borrowed capital to purchase the shares that he could not have acquired from his own funds. X GmbH is an asset management and consulting company and A. acts as managing director for a short time. Just four months after the acquisition, they sell X GmbH for a hundred times the price. A. invests the proceeds from the sale in a French private equity fund.

Questions:

How are the proceeds from the sale of A. treated for tax purposes?
How do you assess the legal situation regarding the fund's income with regard to any AHV contribution obligations of A.?

Factual variant:

A acquired his ordinary shares in X GmbH with equity and has declared them as private assets since 2010. This was always accepted in the tax assessment. A now intends to give his shares to his daughter as a gift.

Question:

Could the shares in X GmbH be qualified as business assets of A. by the tax authorities in 2024?

Case 2: Self-employment within the framework of a German GmbH & Co. KG (AHV perspective)

1. facts of the case

A is resident in Switzerland and is employed by A. GmbH as a member of the Board of Directors. As an investment, he has invested directly in the German-domiciled C. GmbH & Co. KG, domiciled in Germany.

The business assets of C. GmbH & Co. KG include two plots of land with several commercial properties in Germany.

Questions:

How is income from a German GmbH & Co. KG be treated under tax law?

Case 3: Sale of an owner-occupied property: property gains tax or income tax?

1. facts of the case

A., managing director of Maler AG and Gipser AG, purchased a building lease plot located on the lake in the canton of SZ (area: around 1,³⁰⁰ m2) on 10.11.2014 at a price of around CHF 4.4 million. In a decision dated 12.2.2015, the municipality issued a building permit for the demolition of the existing detached house and the construction of a new family house with a granny apartment. A. subsequently built on the building lease plot. The construction costs amounted to around CHF 6 million. On 16.6.2017, A. sold the building lease plot to B. AG for the price of CHF 12.4 million. Together with the property, A. also sold a boat at a price of CHF 250,000 and furniture (B&O system, flatscreen, whirlpool, etc.) also at a price of CHF 250,000.

Before the property in dispute, A. had acquired three other properties in the same neighborhood and sold them again after a short holding period (from 9 months to 2 years and 8 months). He had only ever used these properties as his residence for a short period and then sold them.

A. was dependent on the income from the sale of two properties in order to purchase and build on the third and to finance his luxurious lifestyle.

The cantonal tax authorities classified the sale of the overbuilt building lease property as commercial real estate trading and the sale of the boat and other movables as income from independent acquisition.

A. was unsuccessful both in his appeal to the tax authorities and in his appeal to the Administrative Court.

In an appeal in matters of public law before the Federal Supreme Court, A. claims that the building lease property sold belonged to his private and not business assets. It had been acquired for the sole purpose of moving in with his partner at the time and making the property his family home. Even with regard to the sale of the boat and the furniture, there was no independent gainful activity.

Questions:

How will the Federal Supreme Court rule with regard to the sale of the overbuilt building lease property?
How will the Federal Supreme Court rule with regard to the boat and the furniture?

Case 4: Partial transfer of use of a property - property gains tax or income tax?

1. facts of the case

A. and B. are married and live in the canton of GR. The husband A. is employed 100% as a teacher. He also runs a vineyard. He made a loss of CHF 5,000 from this in 2018. In previous years, the profits fluctuated between CHF 2,000 and CHF 11,000. His wife B. works 90% of the time as a commercial employee.

A. and B. are co-owners of plot no. 1 in the wine-growing zone with an area of around 2,^200m2. A. and B. bought this plot in order to grow vines on it. Wife B. is also the sole owner of plots no. 2 (2,^000m2) and no. 3 (2,^500m2; inherited from her father in 2006 as private property; gross buildable area: ^750m2), which are located in the residential zone. All three plots are covered with vines.

B. left her plot no. 3 to her husband A. to use for his vineyard free of charge.

B. intended to transfer the right^tobuild over 126m2 (gross floor area) from her plot no. 3 to her neighbor's plot for a fee. In a letter dated 7.9.2017, she therefore asked the competent tax office for an early assessment of the tax treatment of this transaction ("tax ruling"). She took the view that the proceeds from the transfer of the structural use were subject to property gains tax. In a letter dated 26.9.2017, the tax office replied that it could not follow the tax qualification proposed by B. and that the compensation was subject to income tax, "even if it is a privately owned property."

On 5.3.2018, B. transferred a usable gross floor area of ^126m2 to the neighboring plot. B. received the amount of CHF 500,000 as compensation.

Spouses A. and B. were still of the opinion that the CHF 500,000 would be subject to real estate gains tax (GR: dualistic system).

In its assessment decision of 7.9.2020, the tax authorities qualified the CHF 500,000 as income from self-employment of Ms. B that is subject to AHV contributions.

After the cantonal appeals against this were unsuccessful, Mr. and Mrs. A. and Mr. B. filed an appeal in public law matters with the Federal Supreme Court. lodged an appeal in public law matters with the Federal Supreme Court. In their appeal, they argue that the competent tax office violated the principle of good faith by classifying the CHF 500,000 as income from self-employment in light of its letter dated 26.9.2017. Furthermore, they argue that the compensation of CHF 500,000 does not constitute income from self-employment due to the fact that the parcel in question is not part of the business assets, meaning that it is subject to property gains tax rather than income tax.

Questions:

Basic assumption to start with: Property no. 3 is the private property of Mrs. B. Is the consideration for the transfer of the gross floor area of ^126m2 subject to property gains tax or income tax?
Did the competent tax office violate the principle of good faith when it qualified the CHF 500,000 as income from self-employment?
Is plot no. 3, from which part of the building use was transferred to the neighboring plot, part of B.'s business assets, so that the compensation of CHF 500,000 constitutes income from self-employment?

Case 5: Termination of self-employment

1. facts of the case

A holds several properties as business assets. All of these properties are rented out. A. would like to sell his properties. As a result, A. sells various plots in 2020. He sells the remaining three plots in 2022.

Questions:

Can A. benefit from privileged taxation under Art. 37b DBG in the context of giving up his self-employed (secondary) professional activity?
If A. can benefit from privileged taxation under Art. 37b DBG: to which liquidation gains (from which year) does the privileged taxation apply?
Can A. claim privileged taxation in 2021 for 2021 and 2020 if the Federal Supreme Court assumed that the liquidation would be completed in 2022 for the 2020 assessment and denied privileged taxation for 2020?

1.1 Factual variant:

Instead of selling the properties, A. would like to transfer the real estate held as part of his sole proprietorship to an AG.

A.'s properties generate a high income (net over CHF 2 million per year). The administrative expenses also amount to CHF 80,000 in the Canton of Zurich alone, which corresponds to at least one full-time position. A. has commissioned a specialized third-party company to manage, rent and collect the properties.

Question:

Can A. transfer the properties to the AG as part of a tax-neutral restructuring?

Case 6: Photovoltaic systems - private or business assets?

1. facts of the case

Simona, owner of a painting business, has owned a detached house for 15 years, which is part of her private assets. For her 60th birthday, she treats herself to something very special by making the following investments in her detached house:

Photovoltaic system (PVA) on the roof
Battery storage system in the basement to store energy from the PVA
Unidirectional charging station (wallbox) for your electric car in the garage

Simona uses the electricity produced on her roof herself or stores it. She feeds the remaining electricity into the grid and receives a payment of CHF 8 centimes per kWh.

Questions:

Can Simona deduct these investments?
How does Simona have to pay tax on the feed-in tariff?

1.1 Scenario 1: PV system on third-party land

Christian is the owner of an industrial building in the neighboring community. Simona concludes a lease agreement with Christian, whom she knows privately but with whom she has no business relationship. This grants Simona the right to install and operate a PV system on the roof of the industrial building. She sells all the electricity produced by the PV system to the local electricity company (EW) at a price of 8 centimes per kWh.

Questions:

How does Simona have to pay tax on the feed-in tariff?
Can Simona deduct her investment in the PV system?

1.2 Scenario 2: Contracting model

Simona is the owner of an industrial building. This is part of her business assets. She makes the unused roof area available to a contractor (EW) for the installation and operation of a PV system (granting of an easement of use or conclusion of an obligatory contract).

Content of the contracting agreement:

The contractor pays Simona a lease fee for the use of the roof of the industrial building for the purpose of installing a PV system.
The contractor sells part of the electricity produced to Simona at a fixed preferential price. The surplus is fed into the grid.
Ownership of the PVA remains with the contractor for the duration of the contract (25 years).
At the end of the contract period, ownership of the PV system is transferred to Simona as the landowner without compensation.

Questions:

What are the tax consequences for Simona?
What are the tax consequences for the contractor?

1.3 Scenario 3: Combination for own consumption

Simona is the owner of an apartment building (MFH) that is part of her private assets. Her neighbors Christian and Martin also own an apartment building. While Christian holds his apartment building as a private asset, Martin's apartment building is part of his business assets.

The roofs of Simona and Christian's MFH are not suitable for the installation of a PVA due to their orientation. However, the roof of Martin's MFH is different. The three of them therefore joined forces to form a self-consumption group (ZEV) and jointly built a larger PV system on the roof of Martin's MFH. This supplies all three MFHs with electricity. Only the surplus energy is fed into the grid.

Question:

1. what are the tax consequences for Simona, Christian and Martin?

1.4 Scenario 4: Granting of a building right

Simona is the owner of an unbuilt plot of land that is located in the building zone but is unsuitable for residential development. The plot is privately owned by Simona. The local EW would like to build a PVA on this plot. To this end, Simona grants the EW a building right to the plot in question, which entitles the EW to install and operate a PV plant (including lines and ancillary facilities) for a period of 30 years. The building right is recorded as a plot of land in the land register. The EW compensates Simona for the building right with an annual building right interest of CHF 120,000.

Questions:

What are the tax consequences for Simona?
What are the tax consequences of EW?
Do the tax consequences change if a one-off payment for the granting of the building right is agreed instead of a periodic building right rent?

Case 7: Loans in business assets and close relationships

1. facts of the case

A. founded a limited liability company with her sister B. with business activities in the catering sector. A. and B. were each managing partners and concluded mandate agreements with the company for this purpose, which provide for quarterly flat-rate remuneration. The contracts provide for a minimum employment of 15 hours and exclude the payment of overtime.

A. has granted a loan to the GmbH. In her tax return, A. voluntarily declares the participation in the company as business assets. The company receives modest lump-sum annual fees of between CHF 2,800 and CHF 6,000 from three clients in Italy. The company subsequently goes bankrupt before the loan can be repaid or the lump-sum fees for the last three years can be paid out.

Question:

Can A. claim the losses from both the lack of amortization of her loan and the lack of fees in the context of part-time self-employment?

1.1 Factual variant:

A. and B. took over the real estate of the catering business from their father as part of a simple partnership and are self-employed. Father V. holds F SA, which has granted the two daughters A. and B. an unsecured loan of CHF 52 million. The interest rate is 5% p.a. and was capitalized annually.

The purpose of the loan is to repay an earlier loan from A. and B. in the same amount, but with collateral, which was terminated after the outbreak of the economic crisis in 2008.

A. and B. claim that they can only save their company with the loan from F SA.

Questions:

From what point in time are A. and B. considered self-employed?
Can A. claim the loan interest as a tax deduction in the context of self-employment (the private debt interest deduction has already been exhausted)?

Case 8: Self-employment in the context of a transparent US LLC (tax perspective)

1. facts of the case

Spouses A. and B. hold a 100% interest in US LLC (C LLC). C LLC holds a third-party managed securities portfolio. The income is paid out to spouses A. and B. In 2020, A. and B. suffer losses from the LLC. suffer losses from the LLC.